Investment

• Investment is the employment of funds on

assets with the aim of earning income
• Capital appreciation
• Present consumption is sacrificed to get a
return in future
• Ex: buy a house, land, mutual fund, shares etc
 Investment
• Sacrifice – today
• Gain – Later
• Time
 Different views of investment

• Layman – monetary commitment

• Economist – net addition made to the
nation’s capital stock that consists of goods
and services that are used in the production
process
• Financial investment – it is the allocation of
money to assets that are expected to yield
over a period of time
 FEATURES OF INVESTMENT
• Safety
• Liquidity
• Regularity and Stability of Income
• Stability of Purchasing Power
• Capital Appreciation
• Tax Benefits
 Objectives of Investment

• Maximization of Return
• 1. Annual Income (Dividend, Interest etc)
• 2. Capital Appreciation
• Minimization of Risk
• •Liquidity
• •Hedge against Inflation
• •Tax Considerations
 What is Speculation?

• Speculation refers to the act of conducting a

financial transaction that has substantial risk
of losing value but also holds the expectation
of a significant gain or other major value. With
speculation, the risk of loss is more than offset
by the possibility of a substantial gain or other
recompense.
 Gambling
• Gambling is the act or activity of betting
money, for example in card games or
on horse racing. Gambling is the wagering
of money or something of value on
an event with an uncertain outcome, with the
primary intent of winning money or material
goods.
 Investment Vs. Speculation
Investment
• Time: Long time horizon
beyond 12 months
• Risk : limited risk
• Return: consistent return
• Decision making: based on
sufficient information and
analysis
Speculation
• Short term holding assets
even for one day with the
objective of gaining high
profits and gains
• High risk
• Uncertain and unstable
return
• Decision made with limited
information and analysis
 Cont
Investment Speculation
• Sources of income: primary • It is based on the change in
source of income is based market price of an asset
on the earnings of the firm

• Psychological attitude of • Daring and careless in

participant: cautions and nature
conservative
 Investment and gambling
Investment Gambling
• Time: Long time horizon • Very short time horizon may
beyond 12 months be less than 1 hour

• Risk : limited risk • Risk: high risk

• Return: consistent return • Highly uncertain and
unstable
• Decision making: based on • Decision is based on tips,
sufficient information and rumors
analysis
 Investment and Gambling
Investment
• Sources of income: primary
source of income is based
on the earnings of the firm
• Psychological attitude of
participant: cautions and
conservative
Gambling
• Result of short term actual
and artificial market price
volatility
• Daring and careless
 Hedging
• Making an investment to reduce the risk of
price movements in an asset
• A hedge consists of taking an offsetting
position in a related security, such as a futures
contract
Security/Marketable Financial Assets

• Equity shares: Equity Capital represents

ownership capital. Equity shareholders
collectively own the company. They bear the
risk and enjoy the rewards of ownership
• Preference share: A preference share has
preferential right to be paid dividend during
the life-time of the company and they have a
preferential right to the return of capital when
the company goes into liquidation.
 CONT..
• Bond:
• A security representing a loan of money from
a lender to a borrower for a set time period,
which pays a fixed rate of interest
• A bond or fixed income instrument is a
contract that requires the borrower to pay the
interest income to the lender. It resembles the
promissory note issued by the govt and
corporate
 Debenture:
• A debenture is a document under the
company’s seal which provide for the payment
of principal sum and interest thereon at
regular intervals, which is usually secured by a
fixed or floating charge on the company’s
property or undertaking and which
acknowledges a loan to the company.
 CONT..
• Convertible Securities: A convertible security
is a security that can be converted into
another security. Convertible securities may
be convertible bonds or preferred stocks that
pay regular interest and can be converted into
shares of common stock
• Hybrid Securities: Term used to describe a
security that combines elements of debt
securities and equity securities.
 Cont..
• Derivatives: An arrangement or product (such
as a future, option, or warrant) whose value
derives from and is dependent on the value of
an underlying asset, such as a commodity,
currency, or security.
 Money Market Instruments:

• Commercial Bill: A bill of exchange issued by a

commercial organization to raise money for
short-term needs.
• T Bills: A treasury bill (T-Bill) are issued by
government of India against their short term
borrowing requirements with maturities
ranging between 14 days to 364 days.
Commercial bill
T - bill
 Cont..
• Commercial Papers (CP): Short-term
unsecured promissory notes issued by
companies.
 Certificates of Deposits:
• A certificate issued by a bank/ other financial
institution to a person depositing money for a
specified length of time at a specified rate of
interest.
 Non-Security/Non Marketable
Financial Assets
• Fixed Deposits/ Term Deposits: A fixed
deposit (FD) is a financial instrument provided
by banks which provides investors with a
higher rate of interest than a regular savings
account, until the given maturity date. It may
or may not require the creation of a separate
account.
 CONT..
• Post Office Schemes /Deposits: National
Savings Certificates (NSC) National Savings
Certificates, popularly known as NSC, is an
Indian Government Savings Bond, primarily
used for small savings and income tax saving
investments in India. It is part of the postal
savings system of Indian Postal Service (India
Post).
 Cont..
• Mutual Fund:
• An investment that pools money from several
investors to buy a particular type of investment,
such as stocks.
• Investment companies obtain funds from large
number of investors through sale of units. The
funds collected from the investors are placed
under professional management for the benefit
of the investors.
• Ex. Open ended schemes and closed ended
schemes
 Cont..
• Life Insurance: it is a contract for payment of a
sum of money to the person assured on
happening of event insured against. Usually
the contract provides for the payment of an
amount on the date of maturity or at specified
dates at periodic intervals or if unfortunate
death occurs.